Written by

Chas Sisk | The Tennessean

This story originally published Oct. 7, 2011.

An agreement between Gov. Bill Haslam and Amazon to begin collecting sales taxes may shift the battle to the state legislature and Congress.

Haslam announced Thursday morning that Amazon will begin collecting sales tax from Tennessee customers starting Jan. 1, 2014, in exchange for the state’s continued support for its expansion plans. But a prominent foe of Amazon said it will keep up its campaign, and people on both sides of the issue said the question will not be resolved unless federal officials pass clear rules for collecting taxes on online commerce.

“Of the online retail sales where tax is not being collected, Amazon is only about 10 percent of it,” Haslam said Thursday. “It’s not just about Amazon. It’s about a national solution.”

Amazon is abandoning its claim that it does not have to collect sales taxes in Tennessee. The decision comes after months of criticism, triggered by the company’s plans to open three distribution facilities that will employ up to 2,000 people in Tennessee.

Prominent Republican lawmakers and businesses ranging from small boutiques to big-box retailers such as Walmart and Best Buy balked at the arrangement, which they said gives Amazon an unfair advantage over traditional retailers.

The deal announced Thursday clears the way for Amazon to open two more facilities employing as many as 1,500 people in the state. It also takes an issue that has bedeviled Haslam since he took office in January off the governor’s back.

But reaction from businesses Thursday was mixed. Some owners said that after years of Amazon skirting sales taxes on Tennessee sales, they were happy the company had changed its stance.

“I, for one, am glad to see it happening, even if it is out to 2014,” said Allen Doty, co-owner of Cumberland Transit outdoors store in Nashville. “It’s better than it never happening out there, which is what was on the table. They get two free years. We’ve been here 30, and we can live another two.”

Others said they plan to press state lawmakers to make Amazon start collecting taxes sooner, and they said they will be lobbying Congress vigorously for a bill that forces the company to collect sales taxes nationwide.

“Why should we have to wait one day longer in Tennessee?” said Mike Cohen, spokesman for the Alliance for Main Street Fairness, a pressure group backed by big-box retailers. “How many Tennessee jobs are lost, how many Tennessee businesses will close because the state grants Amazon a huge price advantage by not having to charge sales taxes?”

National campaign continues

For several months, Amazon has been the target of a national campaign from traditional retailers who complain that their online competitors have an unfair advantage because they do not always have to collect sales taxes.

Online retailers have long argued that collecting sales taxes is not their responsibility. Backing them up is a U.S. Supreme Court decision that said catalog companies do not have to collect state sales taxes unless they have a physical presence — such as stores or offices — in that state.

Amazon has said little about the campaign, but it has supported a federal bill clarifying when state sales taxes are due. On Thursday, the company said it will push for such legislation.

“The sales tax issue must be resolved in Congress,” said Paul Misener, an Amazon lobbyist. “It’s the only way the state of Tennessee will be able to obtain all of the sales tax revenue that can be collected for the state.”

Amazon’s opponents will also take their arguments to Washington. A group of Tennessee retailers will meet next week with members of the state’s congressional delegation, Cohen said.

Cohen’s group also plans to lobby state lawmakers to shorten the timetable for Amazon to start collecting taxes.

“Three holiday seasons is not acceptable,” he said.

Donald Bruce, a University of Tennessee economist who has studied the impact of online commerce on state sales taxes, said only Congress can resolve the question definitively.

“The major court cases have left the ball in Congress’ court,” he said.

The deal between the state and Amazon requires it to start collecting sales taxes in Tennessee sooner if the federal government acts before 2014.

Heat off Haslam

Nonetheless, the agreement does appear to take some of the political heat off Haslam.

The controversy began shortly after Haslam’s predecessor, Gov. Phil Bredesen, told Amazon that it would not have to collect sales taxes if it went forward with plans to open three distribution centers near Chattanooga and Lebanon. Haslam signed off on that promise before taking office.

But in the spring, the chairmen of the state legislature’s finance committees filed a bill that explicitly stated online retailers have to collect taxes when they open distribution facilities in Tennessee. They cited estimates by the University of Tennessee that the state will lose $365.5 million this year in uncollected taxes on online sales and argued that the deal could erode the state’s sales tax base.

Similar complaints forced Amazon to agree to collect sales taxes at future dates in California and South Carolina. More recently, the company came under fire for the heat and work conditions at a distribution center in Pennsylvania. (An Amazon spokesman said Thursday that its facilities in Tennessee will be air-conditioned.)

Finally, Tennessee’s attorney general issued an opinion this week that said existing state law would generally require online retailers to collect sales taxes when they open warehouses in Tennessee.

“The national situation has changed,” Haslam said. “All of us are great quarterbacks on Monday, but I think the state ended up with a really good situation.”

Amazon investment in Tennessee grows

In exchange for agreeing to collect sales taxes, Amazon will receive state support for its plans to open two distribution facilities at undetermined locations elsewhere in Tennessee, pushing its total investment in the state to $350 million and its workforce to 3,500.

Tennessee will offer the company grants for job training. Local governments in Rutherford and Wilson counties and elsewhere have been bidding against one another with their own incentive packages for Amazon, an effort that until now had been known only as “Project Tango.”

Haslam may face criticism that the agreement with Amazon amounts to a tax increase on consumers, but the governor moved to head off that complaint.

Amazon has not been collecting taxes on its Tennessee sales, but its sales have not been tax-exempt. Technically, Tennessee consumers are supposed to track and pay taxes on their online purchases to state officials voluntarily.

“This isn’t about new taxes,” he said. “This is about how we collect sales tax in Tennessee.”

Traditional retailers reached Thursday agreed Amazon should be made to collect sales taxes. Robert Elsick, co-owner of Team Nashville running store, said its policy has amounted to a nearly 10 percent discount.

“All the retailers that I’ve talked to around here, they just want a level playing field,” he said.